Confounding and confusing events 10/3/22
Consumer confidence in September rose continuing its upward movement beginning in August. This is obviously somewhat confounding because of recession fears that have been evident on Wall Street and at the Fed. The increase was significant from 103.6 to 108. This continues the confusing trend that we have seen as we try and determine what the status of the economy is with many of the variables being inconsistent.
Canada announced that at 12:01, on October 1st, all entry requirements related to Covid have been ended. This is a big step as it eliminates the need for preclearance using arrivecan. There is hope along the border that this will increase the flow of cross border traffic, and bring us back to where we were pre-Covid.
China’s central bank has made moves to bolster the Yuan. The steps involved make it more difficult for traders and institutions to bet against the currency, which has weakened along with many others against the US dollar. The steps that the Chinese government is taking are rather severe in that foreign currency exchange forward contracts, will be subject to a 20% risk reserve ratio, up from zero today, and that took effect on September 28th.
Continuing with our currency discussion, there has been a significant weakening of other currencies against the dollar as it strengthens, including Mexico, Switzerland, Canada, Japan, the euro and the British pound along with China who saw a new low of 7.2 yuan to the dollar. The British pound has taken the biggest drop of all of the currencies. This is the first time since the US dollar was introduced in 1792, that the British currency has been this weak against the US dollar. The weakening currencies create more favorable outcomes for the US and its citizens, but some dramatically catastrophic ones for countries like Nigeria, Somalia, Argentina, Egypt and Kenya. In some instances, it is impacting food, fuel and medicine prices, and in others, it is pushing countries closer to default. Obviously, this will also hurt the US in terms of exports because our exports will be much more expensive in other countries.
Continuing with our discussion of Chinese economic activity, the Chinese have greatly expanded their fishing areas and their fishing fleets. One example is that they are fishing off the Gallipolis Islands, which are located off South America. In fact, Chinese fishing represents 80% of fishing in international waters off South America. This could be very problematic as the Chinese have depleted many of the fishing grounds off their own coasts and into the Pacific Ocean. The enormous Chinese population obviously puts tremendous pressure on the Chinese government to produce food, and fish is certainly high on their priority list, and also, to a large extent, easier to secure.
The Congressional Budget Office has indicated that the cost of the student loan forgiveness program will be about $400 billion dollars, and as I commented several weeks ago, the cost of the PPP loan forgiveness program was also in the $400 billion dollar range, if not slightly higher. Those who oppose student loan forgiveness, but support PPP forgiveness are clearly inconsistent, and evidencing their own selfish and greedy bias. These are essentially the adoption of the same philosophic and political philosophy. If you oppose both, I respect that position, but if you oppose one and accept the other, that I can’t.
The threatened shutdown of the government on October 1st is again being addressed by what is known as a Continuing Resolution, which would be in effect through December 16th. This is a process that I saw repeated over and over again while I was in Congress, and reflects how far the institutions of the House and the Senate have deteriorated when people cannot reach compromise on something as important as keeping the government running.
A recent headline read “Factory Jobs are Blooming Like it’s the 70’s”, which is a phenomenon I have commented on several times previously. The fact that this keeps appearing in the news certainly reflects its importance, and reverses the process that began in the late 70’s of automation and outsourcing. We have, in fact, since the beginning of the pandemic, replaced the 1.36 million manufacturing jobs lost from February to April of 2020, with 1.43 million jobs, or a net gain of 67,000. These jobs are not direct replacements because the industries which they are being created in are not in the main, those from which the jobs were lost, but nonetheless, they are good paying manufacturing jobs. The new employers are pharmaceutical plants, craft breweries, ice cream makers, and are likely to be located in the mountain west and southeast, rather than in the industrial strong holds of the Great Lakes and the northeast. Let’s hope this process continues.
My speculation on the issues related to the documents seized from Mr. Trump is that, in fact, he will be indicted, but with an agreed upon plea deal, like Spiro Agnew, Richard Nixon’s first Vice President, he will plead “nolo contendere”, receive no jail time and the matter will be disposed of. I suggest this because a trial, a conviction and a sentence with jail time would be catastrophic for the nation. Why would Trump agree to such a disposition, because I believe his lawyers will advise him that if he doesn’t agree to some similar disposition, that he will, in fact, be indicted, likely convicted, and likely be ineligible to run for public office. Which is his only real fear.
Home prices dropped for the first time in years in July and unemployment claims also dropped. This adds to the confusing sum of the factors pointed toward a recession or not.
The House passed the Electoral College Reform Act with 9 Republican votes. The bill got a boost in the Senate with Mitch McConnell’s announcing his support.
Governor DeSantis when a Member of Congress voted against Hurricane Sandy relief, but he’s begging now. What a hypocrite.
Bill Owens is a former member of Congress representing the New York 21st, a partner in Stafford, Owens, Piller, Murnane, Kelleher and Trombley in Plattsburgh, NY and a Strategic Advisor at Dentons to Washington, DC.
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